The Economic Crime and Corporate Transparency Act (“ECCTA”) received royal assent on 26 October 2023, marking a significant milestone in the UK’s ongoing efforts to combat economic crime and enhance transparency in the corporate sector. Companies House has announced that the first set of changes under the ECCTA are expected to be introduced on 4 March 2024, ushering in a new era of regulatory reform and accountability. Are you ready for these transformative changes?

The upcoming changes encompass a wide range of measures aimed at improving the integrity and reliability of corporate information. Among the key provisions are:

Introducing a new regulatory objective within the Legal Services Act to combat economic crime.
Reforms to Companies House to prevent fraudulent company formations and closures.
Measures to prevent misuse of limited partnerships.
Enhanced powers to seize and recover suspected criminal cryptocurrency assets.
Establishment of a ‘failure to prevent fraud’ offense, holding corporations accountable if they fail to prevent economic crimes committed by their employees or associates.
Implementation of measures to address strategic lawsuits against public participation (SLAPPs) related to economic crime.

These measures collectively represent a comprehensive effort to enhance the UK’s regulatory framework, strengthen anti-money laundering efforts, and combat fraudulent activities in the corporate sector.

Furthermore, the legislation includes exemptions for reporters in the regulated sector under the Proceeds of Crime Act 2002, such as exemptions for exiting relationships and mixed-property transactions. The Solicitors Regulation Authority (SRA) is granted the authority to impose unlimited fines for economic crime offenses. Additionally, Companies House is empowered to take proactive measures against fraudulent activities.

Detailed below are some breakdowns of the act’s key reforms:

Companies House Reform
One of the cornerstones of the Economic Crime and Corporate Transparency Act is the reform of Companies House, the UK’s registrar of companies and legal entities. Recognising the pivotal role that Companies House plays in maintaining the integrity of the corporate register, the act introduces sweeping reforms aimed at improving the accuracy and reliability of company information. Central to these reforms is the implementation of stringent identity verification measures for directors and individuals with significant control, ensuring that only bona fide entities and individuals are registered.

New rules for registered office addresses

All companies will be required to have an ‘appropriate address’ as their registered office, ensuring that any documents sent to this address are expected to come to the attention of a person acting on behalf of the company and recorded by an acknowledgement of delivery. This change means that the use of PO Boxes as registered office addresses will no longer be permitted, and companies failing to comply risk being struck off the register.

Requirement for all companies to supply a registered email address

Companies will be mandated to provide a registered email address to Companies House, with new companies needing to furnish this information upon incorporation. Confirmation statement forms will include a field for existing companies to provide their registered email address, which will not be published on the public register. Failure to maintain a registered email address will constitute an offence under the new legislation.

New lawful purpose statements on incorporation and annual confirmation statements

Subscribers of new companies will be required to confirm that they are forming the company for a lawful purpose, while existing companies will need to make a lawful purpose statement when filing their next confirmation statement. This measure aims to underscore the duty of all companies to operate in a lawful manner and promote transparency in corporate activities.

Moreover, the act grants Companies House expanded powers to investigate and enforce compliance, enabling it to take proactive measures to combat fraudulent activities such as false filings and identity theft. By enhancing the transparency and reliability of the corporate register, these reforms aim to safeguard the UK’s financial system and protect businesses and consumers from the detrimental effects of economic crime.

Limited Partnership Reform
In addition to reforming Companies House, the Economic Crime and Corporate Transparency Act addresses the misuse of limited partnerships, particularly Scottish limited partnerships (SLPs), which have been exploited for illicit purposes such as money laundering and tax evasion. To mitigate these risks, the act introduces stringent registration requirements for limited partnerships, including a requirement for partnerships to maintain a substantive connection to the UK and a mandate for the Registrar to deregister partnerships that no longer carry on business or pose a threat to public interest. These reforms seek to close loopholes that have been exploited by criminals while modernising the regulatory framework governing limited partnerships, thereby enhancing transparency and accountability in this sector.

Cryptoassets
The proliferation of cryptoassets has posed significant challenges to law enforcement agencies in their efforts to combat economic crime. Recognising the need for robust measures to address the criminal use of cryptoassets, the Economic Crime and Corporate Transparency Act provides law enforcement agencies with enhanced powers to seize and recover cryptoassets associated with illicit activities. By amending existing criminal confiscation and civil recovery powers, the act equips enforcement agencies with the tools needed to disrupt and dismantle criminal networks engaged in money laundering, fraud, and other illicit activities involving cryptoassets. These provisions underscore the government’s commitment to staying ahead of emerging threats and adapting its regulatory framework to address evolving risks in the digital economy.

Strengthening Anti-Money Laundering Powers
The Economic Crime and Corporate Transparency Act also strengthens the UK’s anti-money laundering regime, recognising the critical role that collaboration between businesses and law enforcement agencies plays in detecting and deterring financial crime. The act introduces measures to facilitate information sharing between businesses and law enforcement agencies, enabling more effective intelligence gathering and investigation of suspected money laundering and terrorist financing activities. Furthermore, the act reduces the reporting burden on businesses by expanding the types of cases in which businesses can deal with clients’ property without submitting a Defence Against Money Laundering Suspicious Activity Report, allowing for greater focus on high-risk transactions and more efficient allocation of resources.

Importance of whistleblowing to the ECCTA
In light of the Economic Crime and Corporate Transparency Act 2023, organisations must recognise the heightened importance of having a robust whistleblowing policy in place. This legislation, with its emphasis on transparency, accountability, and lawful conduct, underscores the need for proactive measures to detect and deter economic crime within corporate entities.

A whistleblowing policy serves as a critical mechanism for employees to report suspected wrongdoing, including fraud, corruption, money laundering, and other illicit activities. By providing a designated channel for employees to raise concerns confidentially and without fear of retaliation, organisations can uncover potential instances of economic crime early on, preventing further harm and mitigating legal and reputational risks.

Under the ECCTA, companies are held to higher standards of transparency and compliance, with stricter regulatory oversight and enhanced powers to investigate and enforce compliance. A robust whistleblowing policy not only aligns with the spirit of the legislation but also demonstrates an organisation’s commitment to ethical conduct and accountability.

Moreover, in the event of an investigation or enforcement action related to economic crime, having a well-established whistleblowing policy can serve as evidence of an organisation’s proactive efforts to prevent, detect, and address misconduct. This can potentially mitigate the severity of penalties or fines imposed by regulatory authorities and help safeguard the organisation’s reputation and stakeholder trust.

Furthermore, a whistleblowing policy can foster a culture of integrity, openness, and accountability within the organisation. By encouraging employees to speak up about unethical or illegal behaviour, organisations can identify and address systemic issues, strengthen internal controls, and promote a culture of compliance and ethical conduct at all levels.

Conclusion
The Economic Crime and Corporate Transparency Act 2023 represents a landmark legislative initiative aimed at strengthening the UK’s defences against economic crime and enhancing transparency in the corporate sector. Through reforms to Companies House, limited partnerships, cryptoassets, and anti-money laundering powers, the act seeks to modernise the regulatory framework, empower law enforcement agencies, and protect the integrity of the UK’s financial system.

Overall, while the legislation is welcomed for its focus on combating economic crime, some concerns remain regarding the proportionality of fines and potential burdens on legitimate businesses, as well as gaps in provisions related to SLAPPs that may need further legislative attention.

Organisations must recognise the strategic imperative of having a robust whistleblowing policy in place. By empowering employees to report suspected wrongdoing, organisations can enhance transparency, detect and deter economic crime, and foster a culture of integrity and accountability that aligns with the objectives of the legislation.

Law Debenture’s Corporate Secretarial Services team have a robust service offering that support companies through the corporate changes coming into effect through the ECCT Act on 4 March. To read more on the upcoming changes and our services, please see link here. Alternatively, reach out to Chelsea Chivers (Chelsea.chivers@lawdeb.com) and Sharon McKinney (Sharon.mckinney@lawdeb.com).

This summary was originally published by Safecall, our whistleblowing solutions business. See more here.

The Economic Crime and Corporate Transparency Act 2023

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